Poor power headache for industry

The Association of Ghana Industries’ Business Barometer report for the third quarter of the year indicates that poor power supply is the topmost challenge for business operators in the country.

According to respondents to the report, the combined effect of frequent power outages and regular power surges from July to September 2012 has resulted in an increase in the unit cost of production.

Poor power supply moved from seventh in the second quarter to first in the third quarter, making it the biggest mover within the period. This development can be attributed to the load-shedding exercise embarked upon by the Electricity Company of Ghana over the last four months, the report said.

The depreciation of the cedi and high level of taxation were ranked second and third respectively after poor power supply.

The AGI says the power supply situation is “worrying”, calling for government to act on the matter.

“The AGI considers interdependence of industry and energy as a necessity if the country is to attain upper middle-income status in the next three years. It is against this back-drop that the Association is urging policymakers to accelerate completion of the Ghana Gas Project to enable us process the country’s gas resources to generate more power.”

In terms of the overall perception of business performance, there is a drop in expectation of the Business Community going into the final quarter of 2012.

Whilst about 57% of the CEOs interviewed in the second quarter of 2012 (Q2 2012) said they expect the performance of the business environment to improve in quarter three (Q3 2012), only about 52% of the respondents interviewed in Q3 2012 feel the same about quarter four.

“The reasons assigned by the optimists are anticipated improved market, increase in output of labour force, and availability of raw materials. However, those who expect their businesses to perform poorly in Q4 2012 compared to Q3 2012 based their qualms on expected depreciation of the cedi, increase in inflation, and increase in the level of tax-rate.”

AGRICULTURE SECTOR

Access to credit and high cost of raw materials maintained first and second positions respectively as the top-two obstacles hindering the growth of the Agriculture sector operators. See Fig. 3 for detailed ranking of the top-ten challenges for the sector.

CONSTRUCTION SECTOR

Also, access to credit, delayed payment and unfair award of contracts were identified as the top-three challenges facing the Construction Sector. Lack of contracts, which was ranked third in Q2 2012, dropped to seventh position in Q3 2012 whilst low purchasing power (also ranked third in Q2 2012) did not feature in the top-ten in Q3 2012. However, bureaucracy (which did not feature in Q2 2012) appeared in the top-ten in Q3 2012.

MANUFACTURING SECTOR

The Manufacturing Sector singled out poor power supply as the most important factor increasing cost of operations of the sector. Depreciation of the cedi and high level of taxation were also ranked second and third respectively.

“This development calls for an immediate solution, as all the top-three identified challenges facing the sector could have significant impact on cost of production and hence render local manufacturers less competitive in the last quarter of 2012,” the AGI said.

SERVICE SECTOR

Again, poor power supply, depreciation of the cedi and high level of taxation emerged as top-three obstacles to development of the Service Sector.

Overall, low access to credit and cost of credit featured at the fourth and fifth positions respectively. At the tail-end of the table are inflation, low purchasing power and competition from imported goods -- which were ranked eighth, ninth and tenth, respectively.

It is worth noting, the AGI said, that this is the first time since the inception of the AGI Business Barometer Survey that competition from imported goods is being ranked tenth. It is normally ranked at the mid- or upper-end of the table.

“This shows how realistic the AGI Business Barometer is, as it always identifies the most pressing challenges facing the business community.

This is the reason why challenges such as poor power supply, depreciation of the cedi and inflation have displaced competition from imported goods from the upper-end of the table.”

The AGI BBI measures the level of confidence in the business environment and predicts short-term business trends. It simply expresses the state of the business climate in one number, ranging between +100 and –100. It is calculated from “current” business mood and “expectations” for the future.

The third quarter recorded a positive indicator of 19.8, which indicates a drop in business expectation over 2012 Q2 (which recorded an indicator of 26.2). This is an indication that the confidence level of the business community in the business environment has gone down compared to quarter two of 2012.